FIFTY-PERCENT MAXIMUM RATE ON EARNED INCOME.

SEC. 804. FIFTY-PERCENT MAXIMUM RATE ON EARNED INCOME. (a) In General.—Part VI of subchapter Q of chapter 1 (relating to other limitations) is amended by adding at the end thereof the following new section: “SEC. 1348. FIFTY-PERCENT MAXIMUM RATE ON EARNED INCOME. “(a) General Rule.—If for any taxable year an individual has earned taxable income which exceeds the amount of taxable income specified in paragraph (1), the tax imposed by section 1 for such year shall, unless the taxpayer chooses the benefits of part 1 (relating to income averaging), be the sum of— “(1) the tax imposed by section 1 on the lowest amount of taxable income on which the rate of tax under section 1 exceeds 50 percent, “(2) 50 percent of the amount by which his earned taxable income exceeds the lowest amount of taxable income on which the rate of tax under section 1 exceeds 50 percent, and “(3) the excess of the tax computed under section 1 without regard to this section over the tax so computed with reference solely to his earned taxable income. In applying this subsection to a taxable year beginning after December 31, 1970, and before January 1, 1972, ‘60 percent’ shall be substituted for ‘50 percent’ each place it appears in paragraphs (1) and (2). “(b) Definitions.—For purposes of this section— “(1) Earned income.—The term ‘earned income’ means any income which is earned income within the meaning of section 401 (c)(2)(C) or section 911(b), except that such term does not include any distribution to which section 72(m)(5), 72(n), 402 (a)(2), or 403(a)(2)(A) applies or any deferred compensation within the meaning of section 404. For purposes of this paragraph, deferred compensation does not include any amount received before the end of the taxable year following the first taxable year of the recipient in which his right to receive such amount is not subject to a substantial risk of forfeiture (within the meaning of section 83(c)(1)). 83 Stat. 686 “(2) Earned taxable income.—The earned taxable income of an individual is the excess of— “(A) the amount which bears the same ratio (but not in excess of 100 percent) to his taxable income as his earned net income bears to his adjusted gross income, over “(B) the amount by which the greater of— “(i) one-fifth of the sum of the taxpayer’s items of tax preference referred to in section 57 for the taxable year and the 4 preceding taxable years, or “(ii) the sum of the items of tax preference for the taxable year, exceeds $30,000. For purposes of subparagraph (A), the term ‘earned net income’ means earned income reduced by any deductions allowable under section 62 which are properly allocable to or chargeable against such earned income. “(c) Married Individuals.—This section shall apply to a married individual only if such individual and his spouse make a single return jointly for the taxable year.” (b) Clerical Amendment.—The table of sections for part VI of subchapter Q of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 1348. Fifty-percent maximum rate on earned income.” (c) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 1970.